Regulation helps protect investors
The regulatory framework regarding crypto assets and crypto asset trading platforms is developing and evolving. This can leave purchasers, speculators, and investors confused about when and if securities regulations apply.
Registration helps protect investors because registered firms and individuals are subject to certain requirements including risk management, disclosure, and dealing honestly, fairly and in good faith with clients.
While registration exists to provide investors with an added layer of security, just because a firm, CTP or individual is registered does not mean they are without risk. Always evaluate each opportunity and be sure you fully understand the asset and risks involved before you invest, purchase, or speculate in cryptocurrency or other crypto assets.
When do securities laws apply?
Recently, the Canadian Securities Administrators, in collaboration with the Investment Industry Regulatory Organization of Canada (IIROC), issued guidance about the application of securities legislation and regulatory requirements to crypto assets. Here are some scenarios in which securities law may apply:
- If crypto assets that are securities or derivatives are traded on a crypto asset trading platform, the CTP would be subject to securities legislation. In addition, if a CTP trades contracts or instruments that are derivatives based on crypto assets, the CTP would also be subject to securities legislation.
- A CTP does not provide immediate delivery of the crypto asset, creating an ongoing reliance and dependence on the platform by the user. If a CTP stores a user’s crypto assets in a wallet controlled by the platform, creating an ongoing reliance on the CTP to trade or transfer the crypto assets, this creates a contract subject to securities law.
- If an ICO issues security tokens, securities laws may apply.
This list is not exhaustive, and the application of securities legislation is often determined on a case-by-case basis. If you’re uncertain about regulatory requirements of a crypto asset or CTP that you’re considering, contact your local securities regulator before making any purchase decision.
To learn more about how the CSA is supporting innovation in fintech businesses, visit the CSA Regulatory Sandbox page.